RBI may cut rates by 25 bps in December as inflation falls to multi-year low: Report

Mumbai: The Reserve Bank of India (RBI) may cut policy rates by 25 basis points in December, bringing the repo rate down to 5.25 per cent, if the 50 per cent import tariff remains in place until the end of the year, a new report said on Tuesday.

The data compiled by HSBC also suggested that the government could announce a fiscal package for exporters along with fresh economic reforms to support growth.

The report highlighted that inflation has fallen to its lowest level in years, giving the RBI more room to ease monetary policy.

Consumer Price Index (CPI) inflation for September stood at 1.5 per cent year-on-year (YoY) — the lowest since June 2017 — as food prices slipped into deflation.

The fall was mainly driven by easing vegetable prices, strong cereal production, and well-stocked granaries.

Food prices declined both annually and sequentially, with vegetables returning to deflation after a spike in August caused by heavy rains.

Cereal and pulse prices also saw a monthly decline, further easing overall inflationary pressure.

Average inflation for the July–September quarter stood at 1.7 per cent, slightly below the RBI’s forecast of 1.8 per cent.

However, core inflation remained elevated due to a sharp rise in gold prices, which jumped nearly 47 per cent year-on-year in September.

Gold alone contributed around 50 basis points to the headline CPI. HSBC noted that its preferred measure of core inflation — which excludes food, energy, housing, and gold — remained stable at 3.2 per cent during the quarter.

Looking ahead, the report said October inflation is likely to fall below 1 per cent, with vegetable prices easing between 3 and 5 per cent in the first ten days of the month.

Lower oil prices and cheaper exports from China are also expected to keep inflation in check over the coming months.

IANS